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This is a question that I’m asked all the time.
Frankly, it’s not one that I’ve concerned myself with too greatly. I check my real FICO score periodically (not the FAKOs or “Fico-like” that you get with 99% of the free score trials out there that often aren’t even out of 850 and are not what the credit card banks are looking at) and it hovers in the upper 700’s, which is very good. I’ve never had a problem getting a loan due to my credit activities.
It’s not worth opening mileage cards if you don’t plan to pay off your bils on time, so this article is written for responsible people that spend within their means and don’t use their credit card as a blank check.
In the past 8 years or so since I’ve turned 18 I’ve opened and closed many hundreds of cards, earning millions and millions of miles and points that have allowed me to fly around the world multiple times in first class while staying in 5 star hotels literally for free. Our last round-the-world trip would have cost us nearly a quarter of a million dollars(!) had we paid retail for all of the airfare and hotels, yet I was able to do it for next to nothing with miles and points from opening just a handful of credit cards. For me that’s the real beauty of miles, to use them on 5 star experiences that I could otherwise never afford. Plus when you redeem miles like that each mile becomes worth 5, 10, 20, or even 30 cents instead of 1 or 2 cents when used for a domestic coach flight.
Back to the question on hand though. Here is the makeup of your 850 point FICO score according to MyFico:
-Payment History: 35%.
Pay your bills on time and you should ace this category. The more accounts you have that you pay on time the higher your score.
-Amounts owed: 30%
This measures your credit utilization ratio. The more money you spend, the higher your utilization ratio will be, which lowers your score. The more total credit you have available, the lower your utilization ratio will be, which raises your score. So the more accounts and credit you have, the better your score will be here.
Credit utilization ratio applies for each card you have individually (don’t use too much of your credit on any card) and across all of your cards collectively. A credit utilization of about 4% or 5% individually and collectively is thought to be ideal.
If you close an account and lose the credit line your score will go down. However, AMEX lets you transfer your credit line from one credit card to another so consider transferring part of your credit line to a new card before cancelling it. If you are denied for a new Chase card you can call their reconsideration department and have them close down an old card and move that old credit line to get the new card approved or simply keep the old card open and move part of its credit line to get the new card approved. In this way your credit utilization ratio won’t go up and your score won’t go down!
An important factor here is that once you get your bill for the month that spending on the bill will count against you, even if you pay it off on time! If you pay the recent activity on your card off before your statement closes your score will go up! I’ll often pay off the spending on my cards multiple times per month to keep my utilization ratio low.
-Length of credit history: 15%
This takes into account your oldest account, the older the better. It also factors in the average age of your accounts.
It’s important to note that even if you close an account, it stays on your record for about 10 years after you cancel the card! So even if you close an account you won’t hurt yourself in this category until 10 years down the line when the account falls off of your credit report. By that point you should have other older cards that will keep your average account age high enough not to adversely affect your score.
It is a good idea though to keep your oldest account open, although with AMEX even if you close your oldest account they often report newer accounts to have the same opening date as your oldest AMEX cards.
-New credit: 10%
This taken into account credit inquiries and new accounts, which can lower your score temporarily. These fall off your report after about 2 years and most banks only look at the number inquiries you have within the past 6 months.
There are 3 credit agencies (Experian, Equifax, and Transunion) and opening a card will generally only affect your score in 1 of those agencies as the inquiry only hits 1 agency. A notable exception to this rule is that Capital One hits all 3 of your credit reports, so beware that opening a card from them is 3 times as detrimental as opening other cards are.
When you apply for multiple cards (people often will do 2 or 3) from the same bank at the same time using multiple different web browsers (IE, Firefox, Chrome, Opera, etc) you can increase your odds of getting approved for multiple cards and you will generally only get 1 inquiry on your report regardless of how many cards you apply for.
The same bank will check different credit agencies depending on the state which you list as your home address. If you have an NJ address you will find that getting new cards may be harder than from other states as AMEX, Citi, and Chase all inquire from Experian. In some states those banks all inquire from different agencies so there it would be easier to get more cards if you live in those states. Some DansDeals Forum members have had success freezing their social security number at two of the 3 agencies to get approved for more cards.
In this DansDeals Forum thread members report what state they live in and which agencies each credit card bank pulled their credit from.
In the short term you may see your score drop when you apply for a card due to this category and the average age of your accounts, but in the long run having more cards will raise your score, as they improve your payment history (35%) and credit utilization (30%) and eventually the age of your account, which continue to grow older even after you cancel the card.
Types of credit used: 10%
This has little to do with the opening and closing of accounts but takes into factor if you have other accounts like ratail accounts, auto loans, a mortgage, etc. The more varied your portfolio the higher your score.
It’s worth noting that if you are young and building your score, having a parent or relative adding you onto an old account with your social security number that has a good payment history and a low utilization of credit will greatly improve your score and odds of getting approved for a card. Conversely being added onto a card that uses a high percentage of its credit line will hurt you. Being on a card with a very high credit score may make it tough to get approved for cards if you apply for a card and report a low annual household imcome number. You can also more easily get approved for a retail card, like from Gap, or a secured card, than a regular credit card. Start using those cards for a few months and then try to get your own card and start racking up those miles!
In summary, closing a card won’t hurt you in the short-term as long as you are able to salvage your credit line by transferring it to another card which will keep your credit utilization low. If you anyway keep your utilization low, or pay off your accounts multiple times per month, then it won’t matter even if you can’t salvage the credit line. In the long-term (10+ years after closing the card) there can be an effect if you don’t replace the closed cards with other cards to keep up the average age of your accounts.
Opening a new card will lower your score temporarily due to the credit inquiry and lowering of your average account age. However the inquiry will fall off your report soon enough and only makes up 10% of your credit score. The average age of your accounts will continue to get older even if you cancel the new card as it sticks around for 10 years after you cancel it. Additionally having more cards in the long-term will benefit your score as you will have more total credit which will raise your credit score and as the cards grow older your average age will go up which will improve your score.
My score has remained high even with burning by following some of these methods mentioned in this post, and now hopefully yours will too!
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46 Comments On "Does Opening And Closing Cards Hurt Your Credit Score?"
All opinions expressed below are user generated and the opinions aren’t provided, reviewed or endorsed by any advertiser or DansDeals.
Thanks Dan for the great article. I have always wondered if it really gets affected or not. I have a card that charges me $45 a year. I haven’t used it in 5 years and I’m still not sure if the annual fee is worth the minimal higher credit score.
Is it your only card? Can you downgrade it to a free one?
Nice article!!
How far apart in time can you do multiple browsers? Does it need to be seconds apart>
Thanks for this clear “sikum”
2 questions, If I add myself on to someones amex card which will report on my credit report I read, what happens if I close my card is it considered as I closed an account even though its just an AU? And also, why pay off the bill multiple times in middle of the month, is it not just the statement date that matters and gets reported?
Thanks Dan
Thanx for this great condensed article. If I add someone on to my cc as an au to boost their credit score, will that persons score reflect/effect my score?
Do you have any info re. the legality of selling the various miles, the possible consequences and the risk of prosecution if any?
Also are there any halachic considerations?
Sky 121: Its not my only card and they won’t let me get away with the fee
Amazing article Dan. I have been hoping for one of these.
Can you address business cards as well? What is there effect on credit scores?
Hey Dan
Thanks for the great article. How long after closing a card would you recommend to wait before trying to open that same card again?
Dan can you please tell me what the browser trick is and does it work on all cards thanx alot
Being added as an authorized user no longer improves your credit score like it used to. This was stopped a few years ago because to many people were selling there credit to people by adding them as a user until after they bought a house.
@daniel:
At the top of this article is a “related” link. Click on it and read up!
@Mauiguy:
FICO said they were going to stop counting AUs, but in practice this didn’t happen AFAIK. There is a federal regulation that lenders factor in shared accounts between spouses and FICO would be in violation of this rule if they didn’t count AUs as part of the credit score.
wait, do you mean to say that when i apply for a business card i don’t get a hard pull on my CR? or do you mean tht the hard pull does not lower my score? Or do you mean that creditors disregard them when evaluating you for CC’s?
@Tuchus:
I didn’t say or mean any of those things.
The inquiry (aka hard pull) does count against your personal credit score.
Spending on the card however, does not count against you. Nor does it hurt you to close the card as there is no reported spending or spending limit on your personal credit report from a business card.
Thanks for the clarification
I guess i got a little too excited 🙂
Dan, ahhhh, just realized when I canceled my SPG consumer card for reapply, forgot to transfer my CL. So Should I call rep to request CL transfer? But I am worrying about doing this will let them know I have a previous SpG which reduce my chance get 30K again on the new cards I got…
Another quick question, will existing SPG consumer card affect the chance getting 30K bonus for SPG bussiness? or still YMMV? thanks so much for all your helpful blogs and replies.
@Dan Great Info. Just to clarify, If i have around 7 Credit cards totalling over 100,000 in Credit but only one of those credit cards I used the 0% Apr Rate to Cash Advance $6,500 When the whole credit line of that credit card is only $7,000. I pay the min required and never had any late payments. Would that effect my score if i still have another 50,000-100,000 in credit that i only use maybe another $1,000 per month?
@Dan In Jan 2010 i got a tax Warrant for unpaid taxes Which upon realizing it affected my credit at that time I immediately paid fully in Feb 2010. The tax issue was onmy name as well as my wife as we file Jointly. I was able to get credit cards but some carriers said i was not eligible bec of that tax lien that i had. I have my own business for 2.5 years and wasnt able to open a single credit card there yet bec of the tax lien eventhough it was satisfied. Any ideas of what i can do to get approved??
I saw this today on the Today Show on NBC. Seems like they say it does lower your score.
http://www.msnbc.msn.com/id/21134540/vp/#43905938
Dan, What do you think?
Dave
Does the 3BM work when the report they normally pull from is frozen?
Dan,
Good informative article. When I was in school one of the easiest cards to get was the AMEX student card, they checked to ensure I was enrolled, but cared little about my income (less than $1,000 a month). Within 6 months I was bombarded with CC offers. Student cards are a great way to start a credit history (even with annual fee) as long as you pay on time.
Hi, Dan
Thank you for the useful info. Whats the best and least expensive place to monitor my credit score?
although the inquiry wont lower your score by much, it has still been the reason i was turned down twice for cc’s. too many inquiries were a problem for me even though my experian score is 748 (excellent catagory)
any ideas for me?
@Dan:
The thing you forgot to mention is that the key is to jump on the high mileage offers and hold the gun on the run-of-the-mill offers. This past 12 months I have 5 inquiries on my report(I’m in jersey so unfortunately they are all on experian). For my 5 inquiries I have ; 185k amex mr (1 hit with 2 browser method premier 75k+bus. Gold 100k+10k retention bonus); 240k AA miles (1 personal 2 business 75k offers +15k retention bonuses); 60k thank you points (50k premier rewards+ 10k retention bonus) so for 5 inquiries in a 12 month period I have 6 cards and 485k miles/points! Since I did the same for my wife we now have 970k miles/points in just 12 months with very minimal damage to our credit reports. Especially since 3 of the cards are business cards our credit report shows just 3 new accounts opened and since amex reports new cards with the date of your first amex card (in my case 2003) there are really only 2 “new” accounts showing on our reports. So I just wanted to point out that the game can be played very well with very minimal damage to your report. I actually did an analysis of my score and if I would have ZERO inquiries my score would go up 19 points from 762 to 781(but hey if you are going to have ZERO inquiries then what’s the point of having credit in the first place!!) The difference between having 1 inquiry and 5 inquiries was 9 points so my 5 inquiries lowered my score from 771 to 762 and for that I got about a half million miles worth about 8-9 thousand dollars. I’d say its worth it.
Hey Dan thanks for all the info.
If I have a card which I almost never use (and there’s no option of transeferring credit etc.), is it worse to close the account or is it worse to keep it open and not use it at all?
Which harms my credit more?
@fred:
This is great man!!!!
@Dan: Hi Dan, I called them again, they do not pull my report for increasing CL. But for my case, i can not request within 60 days of opening new card. I also asked about whether I could transfered all CL from my already closed credict cards. They told me cause my card is canceled within one months also. He could reactivate that card and transfered CLs then close it. I wonder will it hurt a lot of my credit history or I should ask for it?
Dan, I never use it at all. I would want to keep it open not to ruin my credit score.
@nitantel:
It can still work, but it’s a little tougher.
@Aron:
Citi has a $4.95 deal but it’s FAKO.
@Thanx 4 the touch pad!:
It shouldn’t be going away anytime soon.
There is no exact timeframe.
@al:
Freeze 2 of your reports.
@fred:
Well done!
@yidel:
Leave it open unless there’s an annual fee.
@lrgfc:
YMMV
@H-man:
Unless they will allow you to convert it to a no annual fee card I would just close it.
Dan,
You wrote:
“But why not use your miles to explore and learn to appreciate the amazing world that G-d has given us?”
Well, for starters, let’s not forget that not everyone has the time to take multiple trips around the world.
Furthermore, not everyone likes flying. I personally hate it, and so does my wife. Make no mistake, we love getting to our destination, but we hate the flying part.
Vacations are wonderful, but only 2-3 times a year.
Therefore, when my wife and I have collected more miles and points than we will ever use, the only logical conclusion was to sell them, and sell them we did. (and we made a hefty 15k to boot)
@Dan: Thank You is that what u recommend using for the most accurate info that the cc companies use?Isnt fico better? @Dan:
@To Dan:
You probably hate flying because you fly in coach packed in like sardines. If you used the miles to travel in business or first I doubt you would hate it all that much…
Congrats on making $15K!
Hi Dan:
I have the British Airways for both me and my wife. I was planning on cancelling before the year was up so we wont have to pay the yearly fee again. Are you saying i can call chase or vise and transfer the credit lines from those cards to other cards i have; and it will not affect my credit at all if i close them?
Does AMEX let you transfer credit line from a business card into a personal one?
Does citi let you transfer cl as easily as amex?
Dan was looking for this info for a while thanks. I just was wondering is the amex cards different since they dont have a credit limit(charge card) how does that effect your debt to credit ratio? Does it hurt your credit less or more then a reg cc if u close?
hey i opened up 2 amex gold cards this year, closed one of them and am planning on downgrading the other one before the year is up, i also wanted to sign up for a platinum now, and will cancel after 3 months, is that bad for my credit?
i have a business card in my name, if i apply in my wifes name, would she also get the bonus?
thanks
Does Dan stop replying a certain amount of time after he posts the article?
Dan,
I saw an interesting add for CREDIT KARMA. It says absolutely free credit checking and monitoring. Is this place reliable? Would this hurt my credit everytime it checks my score and changes?
hi Dan. Will the CC company do a “hard pull” if i am merely transferring an existing line of credit to sign up for a new card? Also, does the multiple browser method work to get approved for more than 1 of the same card or just minimizes the amount of inquiries when applying for various cards simultaneously? Thanx for ur great work Dan!
@Moshe:
Correct.
@mister ukulele:
No.
@Mark:
It’s not your real FICO score, just a FAKO.
@mannygreen:
Getting the miles again on the same card.
@milesfreak:
The hard pull is done when you apply for the new card.
It’s for 1 pull when applying for different cards from the same bank.
I just got added to a amex card as a additional user, but looking at my credit report it shows the date opened as of now, I called amex credit, and they told me that the new policy is that the date opened is the date that the au was added.
hi
thsnks for ALL your help,
i’m 25 yrs , with a freedom,sapphire,amex blue cash ,capital one ,apple bank visa ,
psying on time for the past 5 years ,
y is my limit $8k (on freedom,on other cc its less ), how can i increase it without hurting my credit score ?
Dan, i am loving your website! thanks! just to be sure i have two chase freedom cards. I can transfer my credit line from one to the other. close the account i transferred from and it will not effect my credit score?
It is worth noting that your credit score is just 1 of many pieces of data used by credit card companies when deciding to approve.
Wats the best cc to open right wen someone turns 18???